Thursday, February 11, 2016

The imperceptible impact of carbon pricing

Lawmakers who oppose taking action to lower greenhouse gas emissions by putting a price on carbon often argue that doing so would hurt businesses and consumers. But the energy policies adopted by some American states and Canadian provinces demonstrate that those arguments are simply unfounded.
Around the world, nearly 40 nations, including the 28-member European Union, and many smaller jurisdictions are engaged in some form of carbon pricing. In this hemisphere, British Columbia, Quebec, California and nine Northeastern states have raised the cost of burning fossil fuels without damaging the economy. Alberta, Canada’s biggest oil and gas producer, and Ontario have said they will adopt similar policies.
...British Columbia, which is home to 4.7 million people, has placed the highest price on emissions in North America, taxing a ton of carbon emitted at 30 Canadian dollars, or about $21. By comparison, emission permits in California and Quebec are trading at about $13 a ton. And permits sold for $7.50 a ton in a December auction in the Northeastern trading system known as the Regional Greenhouse Gas Initiative. That system covers emissions from power plants in nine states that include Connecticut, New York and Massachusetts.
These actions deserve applause. But their real value may lie in providing a template for the rest of the world.

The New York Times editorial board is, with one exception, citing actions that have not taken place yet as evidence contrary arguments "are simply unfounded." Is there a topic outside of global warming/greenhouse gas emissions that inspires such intellectual laziness? [1]
Two Cap and Trade initiatives cited in the editorial are the California centred Western Climate Initiative (WCI) and the U.S. northeast's Regional Greenhouse Gas Initiative (RGGI).

A couple of years ago the U.S. Energy Information Administration (EIA) wrote on the RGGI. From the graphic I guess one could conclude it had been super super great as emissions were far below cap - or one might think the cap was set far too high, particularly if one reflected on why cap space continued to be held by the emitters allocated the emissions allotment (and/or traders), and not sold to somebody wanting to emit.

I thought, examining this graphic, it looked like the new lower cap was still likely to be above "business as usual" emissions, particularly as similar banked credits have been a source of contention in the European Union's Emissions Trading System (EU ETS) - so, on twitter, I asked the EIA, and was politely told who to contact for more information - but I wasn't looking for more information, I was looking for a firm "no", and not receiving one, I was not inspired to pursue study of the RGGI scheme further.

I perceive the RGGI as a scheme to protect incumbents - I do not seen it as an instrument creating a market for low carbon electricity. Perhaps Ontario and Quebec see it similarly as, despite exporting 40 billion kilowatt-hours of electricity to neighbouring states in the RGGI, they are inclined to join California's WCI scheme.

Californians reduce emissions like they landscape - they find somebody else to do most of the work. The most recent emissions inventory from the Air Resources Board of the California Environmental Protection Agency covers from 2000-2013. Following Copenhagen I tend to look at a 2005 base, and since 2005 78% of California's reduction in emissions came from the "Electricity Generation (Imports)" sector. Drilling down into the data further, 81% of the reductions in the "Electricity Generation (Imports)" sector came from the "Unspecified Imports" category.

This is my Ontario's chosen cap and trade partner.

Regardless, the New York times editorial declaring Proof That a Price on Carbon Works doesn't contain any evidence that is true, unless we take seriously claims B.C.'s carbon tax does reduce emissions. I'm not inclined to get into my interpretation of that aside from noting B.C.'s aim was revenue neutrality and my understanding is that was overshot. I doubt there's many arguing that province's carbon tax is proof that tax cuts work, but if the measurement is economic performance that may be valid. From my own thoughts on carbon taxation in 2012's A tool to heal, A tool to steal:

In the short term the accomplishments are as likely to be from the anti-emissions advertising value from introducing a tax to promote reduced consumption as to be from the minor consumption reduction economist would expect from a minor increase in pricing. British Columbia's young carbon tax has been the subject of at least one study finding early success, without harm to the economy, but as one critic noted, respondents to a survey had generally not noticed any impact of the tax on consumption and had no knowledge of changed emissions - but they liked that there was a carbon tax.

Since 2012 its been claimed BC's tax worked but isn't anymore - with calls to raise the carbon tax. If this was a serious field of study, there's some interesting implications about the long-term price elasticity of demand being lower than the short-term elasticity of demand. That is the opposite of what I'd expect if pricing were the determinant, and exactly what I'd expect if advertising were.

Regardless, to the extent BC's carbon tax has worked, view it in the context of doing little foolish with the revenue - that might make it a template for the rest of the world.